Employment Law Update: New Federal Protection for Confidential Information

Fulcrum Partners Executive Benefits News

The following update was prepared by the law firm of IslerDare PC and is republished here with their permission. 

You may download this report on the Resources Page (New Federal Protection for Confidential Information) of the Fulcrum Partners website.

EMPLOYMENT LAW UPDATE

December 2016

New Federal Protection for Confidential Information

Every employer has valuable information that it wants to protect. This may consist of esoteric computer logarithms, or volumes of consumer data, or something as simple as customer preferences and prices. It is valuable because it is not widely known.

Employers have a new tool to help shield this confidential information – a tool that may open the door to federal court, which in turn may provide faster relief and immediate access to witnesses and documents located anywhere in the U.S.

Trade Secret Protection

Almost every state in the U.S. (including Virginia, D.C. and Maryland) has a law giving owners of valuable, secret information a right to sue an offender – including a former employee – who misuses confidential material

A trade secret, according to the law in most states, is information that derives economic value from not being generally known to others, and the secrecy of which the owner of the information undertakes special efforts to maintain. It is unlawful for a person without authorization to take or disclose or use this information, and the owner can sue to stop the misuse and to recover damages.

The new federal law, called the Defend Trade Secrets Act (“DTSA”), went into effect in May 2016. It provides protection and legal recourse similar to state law remedies, but it can be pursued in federal court. (A claim under based only on state law can be brought in federal court only if the parties are residents of different states and the value of the claim is at least $75,000.)

Why Federal Court?

Should an employer care that it may be able to take its case to federal court? It might. In many areas, the federal courts move faster than state courts. In some jurisdictions, federal judges are regarded as better equipped to handle trade secret cases. Also, the DTSA has a special procedure for rapid seizure of material containing trade secrets that may not be available in a state court. Most importantly, federal courts enjoy nationwide subpoena power, so obtaining documents and dealing with witnesses in multiple states is much easier and less costly, and a judgment is instantly enforceable nationwide.

Do you need to do anything now?

An employer does not need to take any steps in order to be protected by the DTSA. If the employer produces products or renders services intended for use in interstate commerce, the DTSA applies. However, if after May 11, 2016, the employer either asks an employee to sign a confidentiality agreement for the first time, or amends an existing confidentiality agreement, then the employer should include in the confidentiality agreement a statement about the use of secret information by whistleblowers. A sample of such a statement is set forth below. If the employer fails to include this statement in a new or revised confidentiality agreement, then the employer’s remedies will be limited somewhat: without the statement, punitive damages will not be available under the DTSA nor will the court be permitted to require a losing defendant to pay the employer’s attorneys’ fees, but all other aspects of relief will still be open to the employer under the DTSA.

Sample Language

I understand that I may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a)(i) is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) is made solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. Further, I understand that any person who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the employer’s trade secrets to the attorney and use the trade secret information in the court proceeding if that person: (a) files any document containing the trade secret under seal; and (b) does not disclose the trade secret, except pursuant to court order.

If you have questions about the Defend Trade Secrets Act, or if you wish to discuss how best to protect your business’s confidential material, please contact any of our attorneys, or, in Northern Virginia, please contact Mark Dare at 703-748-2690, mdare@islerdare.com, or in Richmond, Steve Brown at 804-489-5500, sbrown@islerdare.com.

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TYSONS OFFICE
1945 Old Gallows Road, Suite 650
Vienna, Virginia 22182
703-748-2690

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RICHMOND OFFICE
411 E. Franklin Street, Suite 203
Richmond, Virginia 23219
804-489-5500

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